Andrew Yang WTF Interview

Michael Hudson Explains Money

Gandalf
Feb 1, 2019 at 1:47 pm


The main area where Japan refuses to allow imports that would be cheaper than what it produces at home would be agricultural products – from rice to beef to apple to liquor, Japan’s home producers are protected from cheaper foreign imports by a labyrinthine system of tariffs and import regulations that jack up the cost of any item imported into Japan and keeps its less efficient producers at home in business. Japan has a consumption tax too on top of that.

The key question I’ve been asking myself has been – why hasn’t the massive money printing in Japan and the US over the last two decades caused hyperinflation already, as happened in Weimar Germany, Zimbabwe, Venezuela, and the US in the 1970s?

Inflation, and hyperinflation, fundamentally start when a country that needs to import certain key goods finds the cost of those goods has skyrocketed.

Now, when a country highly dependent on those imports starts overprinting money, the value of its currency to its trading partners normally collapses, causing prices in its own currency to skyrocket, and setting off a general cycle of inflation/hyperinflation at home.

That’s the Standard Model of Hyperinflation.

It sort of happened to the US in the late 1970s. At the time the US had developed a heavy dependence on imported oil, which had a much larger role in its entire economy than it does today At the same time, the industries of Europe and Japan had recovered from the devastation of WWII and were ascendant.

Wolf had a great article showing how the dollar started dropping as a world reserve currency during that time hitting a low if 40% by the mid 1980s

The Oil Crises of the 1970s and the rising cost of oil were responsible for about 2/3 of the inflation that occurred, according to most economists. Wage inflation also occurred in response, as unions were still strong and many American workers were protected by COLA contracts that raised their wages automatically with inflation. The Federal government had not yet rigged its Consumer Price Index calculations to artificially lower inflation rates.

In the 1980s, Reagan sweet talked the Saudis into turning the oil spigots back on and dropping oil prices (thus crashing the US oil industry for over a decade) – mostly by arming them to the hilt- selling them the best American weapons and building military bases, etc

Changing the CPI formula, crushing unions with right to work laws, starting the wave of off shoring of manufacturing, increased automation, the development of fracking in the US oil industry – all these factors have kept wage and price inflation low in the US since the 1970s

The US is hugely dependent on imports now and runs perpetual trade deficits. The great majority of US trading partners are either beholden to us for their military security (Taiwan, S Korea, Japan) or have shakier economies that hugely depend on selling their stuff to us (China, Mexico, and every Third or Second World country that we buy stuff from)

They can’t afford to stop taking our overprinted dollars or charging us more because we’ll just go somewhere else cheaper and, because the dollar is the world reserve currency, some other poor country will take it. With the trade war going on against China and prices rising there, this is already happening, with manufacturers moving to Vietnam, Thailand, India, and elsewhere

And so we are living high off our WWII legacy as the world reserve currency. Japan is avoiding hyperinflation by keeping imports low, consumption low, prices at home high, and savings high.

It still all looks like a house of cards, a flimsy dam built to hold back a rising flood of debt, in both countries.

The Real Reason by LTA